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Family finances can be complicated in any circumstance, but this is even more true in blended families, where two sets of well-established histories and monetary philosophies try to merge into one.
At Semmax Financial Group, we have noticed several blended families in recent days where other people have remarried, either after a divorce or after the death of their spouse. Sometimes these are older couples who are already retired. In other cases, it is a more young couple situation who is still looking to raise children. But regardless of the details of each individual situation, when families blend, so do their finances, and this is where things can become problematic if careful planning and communication is put in place.
Money is a factor when it comes to bringing baby number 2 home.
I know. I have a mixed circle of relatives and one of the first questions my wife (then girlfriend) asked me was about my credit score. This was a wonderful question because whether you are thinking about buying a space together, buying a car together, or handling money-related issues, any of your credit scores will come into play.
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None of this is to say you should let finances become the final factor in deciding whether you take that relationship further. But you do want to make sure you have a good handle on the myriad financial issues that can come up.
Beyond credit scores, here is a list of some things to consider:
People grow up with different thoughts about money, influenced by their parents or by the circumstances of their formative years. Some people are exceptionally frugal, saving every penny and seldom, if ever, splurging on something just for fun. Others spend with abandon, unconcerned about the unexpected expenses life can throw at them at any moment. Many are somewhere in between these extremes.
If you’re starting a serious relationship, reach out to your new spouse about how each of you approaches expenses.
Once you learn each other’s financial philosophy, you will have decisions to make. Should you blend your financial accounts or keep them separate?
If the two of you are closely aligned with your finances and how you approach spending, you may decide to just combine everything. If you are older, have adult children from prior relationships and are more financially established, you may decide to keep things separate. For many, a hybrid approach may be best — keep some things separate, but have common savings, investments and household accounts to achieve your blended goals.
When there are young people from a previous marriage, especially young people, more monetary conditions come into play. Does a user owe or get child support? How does this fit into the overall budget? What is the prestige of university investment for young people and are there other obligations for them? All of those questions want to be addressed and resolved.
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Furthermore, beyond monetary issues, let’s not forget that it takes time, patience and a concerted effort from everyone to create a satisfied family. Understand that some young people may take longer than others to settle into the “new” addition to the team.
Where will you live and what will you do with the houses you already own?This option can come down to a combination of financial prudence and personal desire. You can simply live in one space and sell or rent the other. Or you can simply sell any of the houses and buy a new one, giving your mixed circle of relatives a fresh start.
When making this decision, you should consider points such as the amount of loan owed on each home, the amount of estate taxes, and whether one home better meets the blended family’s wishes than the other.
It might be prudent to reach a prenuptial agreement, especially if significant assets are involved or if you have large differences in your overall finances. Additionally, as your family rebuilds, make sure your beneficiaries are up to date, whether it’s a will, life insurance policy, or retirement accounts.
Additionally, you will need to update medical standards and durable legal force. It is necessary to consult an attorney when dealing with these issues.
It is important to have common goals for family and finances and communicate them. A smart visual way to do this (and a smart family task) is to create a “vision board” with everyone’s participation. interested so that all opinions are heard.
Of course, there’s a lot to think about here, but a monetary professional should be able to provide recommendations on what to do and the pros and cons of each option that comes along. However, the final decisions will be up to you and your partner.
Above all, it is important to understand the (non-financial) cost that each user brings to dating and how they can work as a team to achieve their dreams.
Ronnie Blair contributed to this article.
The data contained in this document is intended for educational purposes only. It is not intended to provide, nor be relied upon for, tax, legal or investment advice. You are urged to seek the advice of a qualified professional before making any determination based on the express data contained herein.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Michael Sellers is a financial advisor at Semmax Financial Group in Winston-Salem, North Carolina. She has extensive experience in money and earned her CERTIFIED FINANCIAL PLANNER™ (CFP®) designation while working at Vanguard in 2017. Sellers holds a bachelor’s degree in economics from Wake Forest University.